ExpressJet's New Service Aims to be a Time Saver

FORT WORTH -- Travelers this week may begin buying airline tickets on a Texas-based carrier that plans to have service to 24 cities coast-to-coast by the end of June.

ExpressJet, a feeder airline spun off by Continental Airlines in 2002, launches its own scheduled air service April 2 in eight cities, including San Antonio; Spokane, Wash.; and Kansas City, Mo.

The airline's route network will have a transcontinental reach when it adds Jacksonville a few months later.

Tickets went on sale Monday afternoon at the carrier's new website, xjet.com. ExpressJet plans to add sales at online and conventional travel agencies, and to establish its own telephone reservations line.

Houston-based ExpressJet will use its corporate name for its new airline, and will continue to fly under contract with Continental as Continental Express.

For the new venture, it plans to use 44 small jets that Continental no longer needs, all of them 50-seat Embraer ERJ-145s.

It's about time, convenience

ExpressJet will offer meal service on some flights and 100 channels of XM satellite radio at every seat.

It's selling time savings, comfort and convenience, CEO Jim Ream says. He discounts grousing about what some travelers perceive to be less space on regional jets like the ERJ-145. Personal space on ExpressJet's planes is about the same as in coach class on the big airlines, and its seats are "slightly wider," he says.

For ExpressJet, an established regional operator, the risk is big. Larger airlines aren't serving its proposed routes non-stop because relatively few people want to fly them.

"In most of these markets you certainly wouldn't want a plane bigger than a 50-seater, and you certainly wouldn't want to fly it more than twice a day," Ream acknowledges.

Small regional jets are typically used by airlines to feed passengers into large hub airports, and no carrier has been successful operating them in the kind of point-to-point scheduled service proposed by ExpressJet.

The most notable failure of an airline based on regional jets came in January 2006 when Independence Air shut down after just 19 months. The company, previously known as Atlantic Coast Airways, lost its contract to feed United Airlines' hub at Washington Dulles and started the scheduled airline. Independence operated mostly 50-seaters between Dulles and cities mostly in the East.

Ream says his company has taken into account the problems that doomed Independence and plans to avoid them.

It will avoid direct competition with the big airlines and their larger planes by carefully selecting its markets and avoiding the big carriers' strongholds. Ream says ExpressJet's Embraers are perfectly sized for the kinds of routes it will serve and that the big guys eschew.

ExpressJet's careful study of demand patterns between second-tier or non-hub cities shows that enough demand exists for a 50-seat, low-frequency operation to work, he says.

Bypassing big airlines' hubs

Because ExpressJet will bypass the big airlines' hubs, it has a market advantage that Ream says will negate the power of the big carriers' frequent-flier programs: Door-to-door, it will cut travel times significantly.

Prices, meanwhile, will be roughly the same as what prominent discounters such as Southwest charge for one-stop service on such routes. For example, between Ontario, Calif., and Albuquerque, ExpressJet's one-way non-stop fares will range from $94 to $144 -- about what Southwest charges one-way for one-stop service between those two cities.

Existing demand for non-stop travel on such routes is predominantly time-sensitive business travel demand, not price-sensitive leisure travel demand. So Ream expects to offer a big percentage of his seats at the higher price levels charged for tickets bought on short notice.

"We think we've got a product that offers a lot more convenience and value to these travelers," he says.

In late 2005, Continental exercised a provision in its contract with ExpressJet to put 25% of the flying that ExpressJet had been doing for it out for bid.

Last April, Continental announced that Chautauqua Airlines would take over that flying in the spring and summer of this year.

ExpressJet had the option of returning the 69 planes that no longer would be flown under the Continental Express name to Continental, which owned the planes.

Instead, Ream, his management team and his board elected to keep those planes and to launch both an independent airline and a charter airline operation.

The comparisons between Independence Air and ExpressJet have Wall Street worried about the plan for scheduled air service.

Analyst Mike Linenberg at Merrill Lynch, which trades in and at times owns ExpressJet stock, has a sell rating on the airline's stock. And he recently cut his earnings forecast for 2007 to 30 cents a share from $1.10.

Linenberg frets that the costs associated with launching independent operations will be large and hard to control.
Starting dates for ExpressJet service